RMB’s Matete Thulare talks the local currency, Sunette Mulder of Asisa on record inflows into CISs and Dino Zuccollo from the 12J Association on the sunset clause and the ins and outs of 12J investing.
Yes, you may utilise a loan / gearing to make an investment into a VCC, subject to complying with Section 12J(3)(a) of the Income Tax Act.
According to the Section 12J Association of South Africa, there has been in excess of R9 billion raised into the Section 12J industry. Westbrooke is SA’s largest Section 12J fund manager, managing over c.R2.7 billion of the capital raised in the industry to date.
The VCC regime, introduced in 2009, is subject to a 12-year sunset period that ends on 30 June 2021. The upfront income tax relief will only apply to VCC shares acquired on or before 30 June 2021. The sunset clause is to be reviewed, and may be extended thereafter.
The term of the investment will be a minimum of 5 years, with a realization period of up to 18 months thereafter (if required).
As with any private equity investment, an investment in a Section 12J company carries risk. It is important, therefore, to assess the investment strategy of the Section 12J company to ensure you understand the associated investment risk as well as the expertise and track record of the asset manager.
There is an annual investment limit of R2.5m per individual / trust and R5m per company.
Your Section 12J deduction will only be recouped (and the tax relief withdrawn) if:
When investing, Westbrooke will provide each investor with a tax certificate which is used as evidence of their investment into an approved Section 12J company.
Investors can claim their tax relief by either reducing their estimate of taxable income when submitting provisional tax returns or by obtaining a tax refund through the annual income tax assessment.
An investment into an approved Section 12J company is 100% tax deductible in the tax year you invest.
A Venture Capital Company as described in Section 12J of the Income Tax Act, which came into operation with effect from 1 July 2009. Section 12J is a tax-based incentive designed to encourage individual and corporate investors to invest in a range of small and medium size companies by investing through Section 12J.
The aim of the incentive is to create a pool of passive investors who obtain an upfront tax deduction for investing with a manager who is responsible for making investments which stimulate the South African economy and create jobs.
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Investment Strategy |
Targeted investment returns1 |
Targered consistent dividend |
Targeted dividend yield p.a. |
Targeted capital growth |
Investment term 5 – 6 years |
Upfront fees |
Annual fees 2% |
Performance incentive 20% above CPI/JIBAR hurdle on net investment4 |
Westbrooke S12J diversified portfolios |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Income Portfolio |
Balanced Portfolio |
Growth Portfolio |
||||||||||
| aria / Alternative Rental Income Assets | Movable asset rentals |
15% p.a. |  |
9%2 | |
Nil | |
|
40% | 34% | 20% | |
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| stac / Student Accommodation | Student Accommodation |
> 17% p.a. | |
10%2 | |
|
Nil | |
|
20% | 33% | 40% |
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| aria plus/ Alternative Rental Income Assets Plus | Movable asset rentals and renewable energy infrastructure |
> 20% p.a. | |
9%2 | |
|
Nil | |
|
40% | 33% | 40% |
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